Residential construction keeps rolling in October, despite high interest rates

Pessimism among builders grows, but permits and starts remain on modest uptick

Construction of both single-family and multifamily homes ramped up in October, as builders continue to break ground with low resale listings still driving hopeful buyers to new homes.

According to the newest data from the U.S. Census Bureau and the U.S. Department of Housing and Urban Development, overall housing starts rose 1.9% month over month, with single-family starts up 0.2% and multifamily starts up 4.9%. Single-family starts grew to a seasonally adjusted annual rate of 970,000 units, while the prior month’s figures were revised upwardly from the originally reported 963,000 units to 968,000.

The single-family sector’s modest uptick presents an interesting barometer, depending on your point of view. Considering the persistent need for more housing inventory, a pessimistic observer could bemoan the nearly flat month-over-month numbers, which were hindered by the ongoing elevated interest rate environment. A more positive read is that the obstinate lack of inventory continued to fuel new construction in the fall despite housing affordability that has eroded to the lowest level in recent memory.

“The construction data in October continue to reflect that despite multidecade lows for housing affordability, the market continues to lack attainable inventory that only the homebuilding industry can provide,” said Robert Dietz, chief economist for the National Association of Home Builders (NAHB). “And with the 10-year Treasury rate now back in the 4.5% range, we are forecasting gains for single-family homebuilding in the months ahead and an outright gain for construction in 2024.”

Permitting gained steam as well, with authorizations of new single-family home edging up 0.5% to reach an annualized rate of 968,000 units. That’s the highest level since May 2022, although single-family permits remain down 10.6% on a year-to-date basis. Multifamily permits were up 2.2% to an annualized pace of 519,000 units.

Downside risks remain scattered about, including heightened construction costs and growing concerns about potential regulations, such as a proposal to tighten building code requirements for properties financed by Federal Housing Administration (FHA) loans. Such issues, coupled with the big whammy of high interest rates, have pushed builder confidence to their lowest level this year. The NAHB/Wells Fargo Housing Market Index (tracking builder sentiment in the market for newly built single-family homes) dropped by 6 points in November, its fourth straight monthly decline.

“The rise in interest rates since the end of August has dampened builder views of market conditions, as a large number of prospective buyers were priced out of the market,” NAHB Chairman Alicia Huey said. “Moreover, higher short-term interest rates have increased the cost of financing for homebuilders and land developers, adding another headwind for housing supply in a market low on resale inventory.

“While the Federal Reserve is fighting inflation, state and local policymakers could also help by reducing the regulatory burdens on the cost of land development and homebuilding, thereby allowing more attainable housing supply to the market.”

Dietz, however, remains encouraged.

“While builder sentiment was down again in November, recent macroeconomic data point to improving conditions for home construction in the coming months,” he said. “In particular, the 10-year Treasury rate moved back to the 4.5% range for the first time since late September, which will help bring mortgage rates close to or below 7.5%. Given the lack of existing home inventory, somewhat lower mortgage rates will price in housing demand and likely set the stage for improved builder views of market conditions in December.”


More Headlines